9 March, 2015 (Singapore) - As part of its knowledge partnership with the Last Mile Fulfilment Asia Conference 2015, top-management consulting firm A.T. Kearney released the study “Breaking a Logistics Golden Rule” today.
According to the study, e-retailers in China could cut express delivery time in half—from 48 to 24 hours—and still maintain reliable service without spending anything extra on distribution or delivery. “Our study is breaking the conventional wisdom that faster delivery costs more than slower delivery.”, says Jian Li, Principal with A.T. Kearney’s Transportation, Travel and Infrastructure Practice in APAC and one of the authors of the study. “While this is true in most areas of logistics and operations, this paradigm does not hold for e-retailers thanks to features that are unique to the typical e-retail supply chain.”, he explains.
While faster delivery requires a larger number of fulfillment centers leading to higher fulfillment center costs, the following effects could make a 24-hour shipping model more cost effective than a 48-hour shipping model:
Inventory carrying cost: A 24-hour service model allows reduction of 1-day worth of inventory. In other words, in-transit inventory carrying cost is lower.
Transportation cost: As there are more fulfillment centers and those are closer to the consumers, last mile travel distance is shorter and transportation cost are therefore lower.
With the 24-hour shipping model, e-retailers can lower fulfillment costs yet improve consumer satisfaction:
Meet consumers’ expectations
A third of online shoppers in China are “convenience seekers”. They look for full assortment, want “ease-of-use” when on-line shopping, and demand their orders to be delivered to their doorsteps quickly—fast and reliable logistics and delivery support is essential
Differentiate in new territory
Online offerings have become commoditized in China. “Retailers have similar product assortments, comparable geographic coverage, competitive prices, and promotional activities that look very much alike. Logistics is where e-retailers can set themselves apart.”, explains Mui-Fong Goh, Partner with A.T. Kearney’s Transportation, Travel and Infrastructure Practice and co-author of the study.
Win the footrace to consumers’ doors
Some online shoppers place duplicate orders with different e-retailers, pay for the order that arrives first, and return the others, driving up return rates. This is likely to be a transient behavior as e-retailers are working on loyalty programs and consumers will eventually latch on. However, in the meantime, fast delivery equates revenue capture.
“To win the e-commerce race, China’s most strategic e-retailers will challenge conventional viewpoints on service and logistics.”, says Goh. “This requires a deep understanding of consumer needs and the willingness to re-think the e-retailer and logistics service providers’ cost structure.”
About A.T. Kearney
A.T. Kearney is a leading global management consulting firm with offices in more than 40 countries. Since 1926, we have been trusted advisors to the world's foremost organizations. A.T. Kearney is a partner-owned firm, committed to helping clients achieve immediate impact and growing advantage on their most mission-critical issues.
For more information, visit www.atkearney.com.
About Last Mile Fulfilment Asia 2015 (LMFAsia 2015)
LMFAsia will comprise a two-day conference, positioned as the centrepiece of the event for all industry players to come together for exchange of ideas and knowledge sharing, and an exhibition floor which will showcase the latest innovative solutions, products and services for the fulfilment and eCommerce ecosystem. Business matching and networking sessions will also be a key feature of the event, providing the platform for new business partnerships and opportunities.
LMFAsia will be held on 19 and 20 March 2015 at MAX Atria @ Singapore EXPO.
For more information, please visit www.lmfasia.com.